Sovereign Wealth Fund Institute

The Korea Investment Corporation (KIC) views some European assets as attractive even during the current European sovereign debt crises. Middle East sovereign funds have shown lukewarm interest in direct European bank investment. Depending on individual liquidity needs, certain European governments and businesses are selling assets to raise cash, and sovereign wealth funds want to be in the position to take advantage of the valuation discounts. Korea’s SWF is stepping up their presence in Europe. They opened up an overseas office in London. Don’t expect any major direct investments in banks or in large part European banks from the KIC. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

The Korea Investment Corporation (KIC) opened up their overseas European investment office in London on 1 Bartholomew Lane in December 2011 on the tenth floor. They now purchased an 80,000 square feet block at 1 Bartholomew Lane for around 75 million pounds. The property is opposite of the Bank of England. Hines, a U.S. real estate developer will be the asset manager.

Many sovereign investors started investing in real estate in safe haven markets like London and Paris. Norway’s GPFG made their first real estate venture in the United Kingdom. Large office income-producing properties are in demand in major European core markets.

The Korea Investment Corporation (KIC) is holding off for now on purchasing more shares of Bank of America Corp. Initially, the KIC was thinking about raising their stake in Bank of America by reinvesting the dividend it received from the bank.

KIC became an investor in Bank of America after its Merrill Lynch shares were converted.

Bank of America Corp has been hurt by a barrage of mortgage-related losses and large lawsuits. Recently, its credit ratings were cut by Moody’s Investors Services.

Asian sovereign funds have been active in investing in Latin American natural resources. The Korea Investment Corporation, Canada’s Ontario Teachers’ Pension Plan (OTPP), and another investor are planning to invest in Manabi Holding SA. Manabi Holding SA is a Brazilian special purpose company that manages steel assets and iron ore exploration.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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According to the press release, “Laricina Energy Ltd. (Laricina or the Company) is pleased to announce that it has completed today a private placement to a wholly-owned subsidiary of Korea Investment Corporation (KIC) of 1,666,000 common shares at Cdn. $30.00 per common share for gross proceeds of approximately Cdn. $50 million.

On July 28, 2010, Laricina completed a private placement of 846,933 common shares and a non-brokered offering of 27,921 common shares, both at a price of Cdn. $30.00 per common share for gross proceeds of approximately Cdn. $26.2 million. The addition of the KIC private placement financing increases the total gross proceeds raised to Cdn. $76.2 million.

Both private placement offerings were completed on a brokered basis with a syndicate of agents co-led by Peters & Co. Limited and RBC Capital Markets.

Macquarie Capital Markets Canada Ltd. acted as financial advisor to KIC.”

Source: Laricina Press Release

According to Reuters, “Korea Investment Corp (KIC), South Korea’s $35 billion sovereign wealth fund, plans in the next five years to double the proportion of its funds in private market investments such as distressed debt and real estate to 20 percent.

“Right now is the time to go into private markets,” Scott Kalb, KIC’s chief investment officer, said at a speech in Seoul Tuesday. “Risk premiums on illiquid investments are becoming attractive.”

KIC invests wholly outside the country. It has generated a return of 11.5 percent as of July 30 since it was established about five years ago from funds given to it by the government and central bank.  As of June the fund had 10 percent of its investments in private market investments, versus 49 percent in bonds and 41 percent in stocks. Kalb expects the fund’s assets under management to grow between $5 billion and $10 billion annually.  Kalb did not see the time as right to invest in leveraged buyout or venture capital funds and was sceptical of further rallies in bond markets with interest rates near record lows.

“If I were a bond manager I would retire today,” he said. “We expect lower returns for fixed income and equities over the next few years as the financial system undergoes repair.”

Kalb joined Korea Investment Corp. in April 2009 after working for Black Arrow Capital Management, Tudor Investment Corp. and Citigroup.”"

Source: Reuters

Blackstone bought GSO Capital Partners LP in March 2008. One of the sovereign wealth funds participating is reported to be the Korea Investment Corporation.

According to the press release, “GSO Capital Partners LP, the credit business of The Blackstone Group, today announced the final closing of the Blackstone / GSO Capital Solutions Fund (“the Fund”) with total commitments of over $3.25 billion. The Fund’s strategy is focused on providing privately negotiated “capital solutions” to companies in need of liquidity or significant capital structure transformation due to pending covenant violations, debt maturities, cyclical downturns in their businesses or other funding requirements. The strategy leverages GSO Capital Partners’ distressed, credit and trading expertise, along with its unique deal origination capabilities. Thus far, the Fund has invested approximately $600 million in seven different companies. Bennett Goodman, Senior Managing Director of The Blackstone Group and Co-Founder of GSO Capital Partners said, “There are many great business franchises facing liquidity issues. We’re delighted to have raised a new fund of this magnitude to assist mid-market companies with their financing needs.”

Investors in the Fund include a diverse group of domestic and international pension funds, sovereign wealth funds, endowments, foundations and family offices.”

Source: The Blackstone Group Press Release

According to the AFP, “Agricultural Bank of China on Tuesday confirmed plans to raise a world-record 23.2 billion dollars in a dual initial public offering in Hong Kong and Shanghai.  The last of China’s “big four” state banks to list said it would raise the money if the monster IPO is fully subscribed when it begins on Wednesday.

Major institutional investors including sovereign wealth funds have already expressed strong interest in the IPO, which is on course to surpass the previous record of 22 billion dollars set in 2006 by Industrial and Commercial Bank of China (ICBC).  AgBank said Tuesday that it planned to raise 13.1 billion US dollars from its Hong Kong IPO, with a price range of 2.88-3.48 Hong Kong dollars (37-44 US cents) a share. Xiang Junbo, chairman of AgBank, said government efforts to boost growth in China’s depressed central and western regions would help the rural lender.

“The county area business will be one of our key profit drivers,” he told a press conference in Hong Kong on Tuesday. “(AgBank) is well positioned to capitalise on China’s next wave of growth.”

The bank, which has been criticised for the amount of bad loans on its books, has worked in recent years to chop that figure, Xiang said.

Agbank’s prospectus said its bad debt ratio dropped from 4.32 percent in 2008 to 2.91 percent in 2009.

“The bank has made substantial improvement in the last few years,” Xiang said, referring to its credit review procedures.

The newly released prospectus said AgBank booked a profit of 65 billion yuan (9.56 billion US dollars) in 2009, up from 51.45 billion yuan in 2008. It is forecasting a 2010 profit of 82.9 billion yuan. Xiang also said a stronger yuan — demanded by the United States and other trading nations which claim they have been hurt by an unfairly cheap Chinese currency — could be “positive” for AgBank.”

Read more: AFP

Scott Kalb

According to Reuters, ” Korea Investment Authority, South Korea’s $35-billion sovereign wealth fund, has reduced exposure to euro zone equity and fixed income investments and is now underweight on assets in the region, the fund’s top official said on Thursday.

“We are very worried about what’s going on in Europe. I don’t think the austerity measures (adopted by some of the euro zone countries) will be enough. I think they will have to do some debt rescheduling,” said Scott Kalb, chief investment officer at the sovereign wealth fund known as KIC.

Kalb spoke at a forum sponsored by The Korea Society. Kalb, however, said the fund is not shorting the euro but trimming its investments in the region from what he thought was a substantial exposure. The KIC official said Europe has “an artificial union” with Germany as the principal backer.

“We’re kind of shocked that Germany seems to have stepped away.” Germany came under fire at the height of the Greek debt crisis after it seemed the euro zone’s largest economy was reluctant to bail out Greece.

It did eventually vote to assist Greece and other indebted euro zone nations via a $1-trillion safety net, but not before widespread criticism from other euro zone countries and global investors. More recently, Germany got flak after it announced plans for 80 billion euros in budget cuts over the next four years.”

Read more: Reuters

According to the article, “Seoul, is preparing to invest approximately $2.25 billion in private equity, real estate and hedge funds, the KIC’s first move into alternative investments, said Scott E. Kalb, chief investment officer. Private equity strategies will include LBO, mezzanine, distressed, growth capital and venture capital, according to the fund’s 2008 annual report.

Although KIC officials have been planning the moves for more than a year, 2008 wasn’t the right time to start making investments, Mr. Kalb said. ‘Last year was not an alpha year; it was a capital preservation year.’”

read more: Pensions & Investments

Korea Investment Corp., the $24.8 billion South Korean sovereign wealth fund, has hired a Tudor Investment Corp veteran to serve as its chief investment officer. Scott Kalb, who had worked for Tudor and other asset management firms, will replace former CIO Guan Ong on April 1, Reuters reports. Kalb was also a managing director at Citigroup’s Smith Barney International Asset Management. KIC manages part of the country’s foreign currency reserves on behalf of the Bank of Korea and assets of the finance ministry. With the South Korean government planning to increase the asset size of KIC to $50 billion by 2010, a revised law, pending at parliament, will allow the wealth fund to buy domestic stocks and other assets. It invested $2 billion in Merrill Lynch early last year before it was bought by Bank of America, which has reportedly translated into heavy losses.

read more: FINalternatives

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